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Since our post last week regarding pre-owned inventory scarcity and higher prices, I have been asked to speculate as to the reasons and effects, so here goes. To my mind the answer to why prices are increasing at such a fast pace is "Supply and demand.” Through the recession, average new car sales per year fell from 16 million plus, to under 11 million. Less new cars being sold means fewer potential trade-ins, which in turn is causing this shortage of used cars on offer and consequently less for dealers to sell. Secondly due to the recent tsunami in Japan and the resultant shortage of new car product from the Japanese mainland manufacturers many of their franchise dealers have turned to Pre-Owned car sales to try and make up for the profit shortfalls. Unfortunately many of these dealers are not practised Pre-Owned professionals and so tend to over pay just to get something to sell. But that has caused wholesale price rises without a commensurate Retail driven price increase, thus putting margins for all dealers under pressure.
These two factors above when translated via the old laws of supply and demand has even led to an increased demand for types of cars that have typically been considered less than desirable on a normal basis – for dealers realize that you can’t make a profit from a vacant space on your lot. That thinking in itself whilst technically correct can lead to long or medium term unplanned losses that can wipe out any short term profit gains. The wrong stock is always the wrong stock, even when acquired for the right reasons.
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